Nokia 2011 Annual Report Download - page 116

Share-based Compensation
We have various types of equity-settled share-based compensation schemes for employees mainly in
Devices & Services and Location & Commerce. Employee services received, and the corresponding
increase in equity, are measured by reference to the fair value of the equity instruments as at the date
of grant, excluding the impact of any non-market vesting conditions. Fair value of stock options is
estimated by using the Black-Scholes model on the date of grant based on certain assumptions. Those
assumptions are described in Note 24 to our consolidated financial statements included in Item 18 of
this annual report and include, among others, the dividend yield, expected volatility and expected life of
stock options. The expected life of stock options is estimated by observing general option holder
behavior and actual historical terms of Nokia stock option programs, whereas the assumption of the
expected volatility has been set by reference to the implied volatility of stock options available on Nokia
shares in the open market and in light of historical patterns of volatility. These variables make
estimation of fair value of stock options difficult.
Non-market vesting conditions attached to the performance shares are included in assumptions about
the number of shares that the employee will ultimately receive relating to projections of sales and
earnings per share. On a regular basis, we review the assumptions made and revise the estimates of
the number of performance shares that are expected to be settled, where necessary. At the date of
grant, the number of performance shares granted that are expected to be settled is assumed to be two
times the amount at threshold. Any subsequent revisions to the estimates of the number of
performance shares expected to be settled may increase or decrease total compensation expense.
Such increase or decrease adjusts the prior period compensation expense in the period of the review
on a cumulative basis for unvested performance shares for which compensation expense has already
been recognized in the profit and loss account, and in subsequent periods for unvested performance
shares for which the expense has not yet been recognized in the profit and loss account. Significant
differences in employee option activity, equity market performance, and our projected and actual net
sales and earnings per share performance may materially affect future expense. In addition, the value,
if any, an employee ultimately receives from share-based payment awards may not correspond to the
expense amounts recorded by the Group.
Results of Operations
2011 compared with 2010
Nokia Group
The following table sets forth selective line items and the percentage of net sales that they represent
for the fiscal years 2011 and 2010.
Year Ended
December 31,
2011
Percentage of
Net Sales
Year Ended
December 31,
2010
Percentage of
Net Sales
Percentage
Increase/
(Decrease)
(EUR millions, except percentage data)
Net sales ......................... 38659 100.0% 42 446 100.0% (9)%
Cost of sales ...................... (27340) (70.7)% (29 629) (69.8)% (8)%
Gross profit ....................... 11319 29.3% 12 817 30.2% (12)%
Research and development
expenses ....................... (5612) (14.5)% (5 863) (13.8)% (4)%
Selling and marketing expenses ...... (3791) (9.8)% (3 877) (9.1)% (2)%
Administrative and general expenses . . (1 121) (2.9)% (1 115) (2.6)% 1%
Other operating income and
expenses ....................... (1868) (4.8)% 108 0.3%
Operating profit .................... (1073) (2.8)% 2 070 4.9%
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